Category: Bulgaria

Djingov Gouginski Kyutchukov & Velichkov has advised Unicredit Bulbank, DSK Bank, and United Bulgarian Bank on their approximately EUR 160 million financing for Maxcom, Chipolino, and Maxbike.

Maxcom is a bicycle manufacturer. Maxbike is a bicycle vendor. Chipolino is a Bulgarian brand of strollers, car seats, baby carriers, high chairs, and other products related to sleeping, playing, and bathing.

According to the firm, the transaction included “various types of facilities extended under the facilities agreement and an unfunded participation stake of an international public financial institution.”

DGKV’s team included Partner Georgi Tzvetkov, Senior Associate Deyan Bogdanov, and Associate Stephan Solachki.

Editor’s Note: After this article was published, Schoenherr informed CEE Legal Matters that it advised the EBRD, which acted as the guarantor of the EUR 160 million syndicated facility. The firm’s team included Attorneys Tsvetan Krumov and Kristina Lyubenova.

This seems like a relevant question in Bulgaria in the summer of 2022. While the chatter has been intensifying lately, it has been mostly taking place in specialized business-oriented media and, by far, not as much in any mainstream source of information for the general public.

Indeed, the concept of non-financial reporting is not completely foreign to Bulgarian business. Listed companies have been required by the Public Offering of Securities Act (POSA) to report on compliance with internationally recognized good corporate governance standards ever since 2007. This obligation transformed, in 2016, into an obligation to publish a statement of corporate governance, which is essentially a declaration of conformity by the issuer with a chosen publicly available Code of Corporate Governance, or otherwise, an explanation for the failure to apply one and the reasons for that. As of the same year, the Accountancy Act (AA) extended by reference to POSA this obligation to certain Public Interest Entities (PIEs), including undertakings whose transferable securities were admitted to trading on a regulated market in any EU member state, credit institutions, insurers, and re-insurers.

As of 2017, in line with the Non-Financial Reporting Directive (NFRD), all PIEs which are also large undertakings pursuant to the AA and whose number of employees exceeds 500 have also been required to include in their activity reports a non-financial statement, including the information necessary to understand the development, results, condition of the enterprise, and the impact of its activities, as a minimum relating to environmental and social and employee issues, respect for human rights, and the fight against corruption and bribery.

While it may seem like quite a large circle of mandated entities because the definition list of PIEs includes – besides the above-mentioned EU-listed companies, credit institutions, and insurance companies – pension insurance companies, investment intermediaries, collective investment schemes, financial institutions qualifying as large undertakings pursuant to AA, energy trading companies qualifying as large undertakings, etc., the threshold of 500 employees along with the PIE scope limits the mandated companies to a very small number indeed and, therefore, renders the direct exposure of businesses to non-financial reporting practically insignificant.

Obviously, the introduction of the rules of the forthcoming Corporate Sustainability Reporting Directive (CSRD) will significantly enlarge the cohort of affected entities by putting in scope all large companies and listed companies (except for listed micro-enterprises), while also pushing for mandatory audits, and the business world is generally aware of that. However, this is still perceived as yet another compliance requirement in an ever-growing line of such that businesses will have to endure. What escapes the attention of the average Bulgarian entrepreneur are the implications of such reporting and disclosures beyond the immediate cost and administrative burden of compliance.

For once, the disclosures may have an impact on the financing opportunities of the companies. Some banks are already signaling that their financing decisions going forward would be strongly based on sustainability considerations. The EU policies are geared towards sustainable finance as a means of promoting and supporting the achievement of the goals of the Green Deal and EU climate and sustainability objectives, meaning that, through enforcement of the policy, the ESG criteria would be having a decisive role in private financing decisions too.

While the CSRD will only affect a few large businesses, it will indirectly affect their smaller suppliers, service providers, and all kinds of business partners, the interactions with whom might have an impact on the disclosures of the reporting companies.

Finally, because of the Green Deal and climate-related considerations used most often when talking about sustainability, the general perception is that ESG is mostly environment-related, green compliance. This could lead to underestimating the other two pillars and especially social considerations, which could present no smaller of a challenge, especially in an economy that has been facing a lot of challenges for years.

With all the above, it is time for Bulgarian businesses to raise their awareness and to address ESG as the complex matter that it is, rather than as the next level of compliance. It would also help a lot if the government invested some time and effort in communicating all the relevant aspects and helping businesses find their way through the variety of mostly vague and inconsequential messages from various experts and consultants in the online space.

Svetlin Adrianov, Partner and EY Law Leader for Bulgaria, Albania, and North Macedonia

This Article was originally published in Issue 9.7 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Several legislative updates will support the legal profession in Bulgaria, according to Gugushev & Partners Partner Dafinka Stoycheva, with the push toward green energy, (another) pending government change, and a landmark CJEU decision also at the top of the agenda for lawyers in the country.

“During the past year, a lot has changed for the legal profession,” Stoycheva begins. “The old legislation concerning the legal profession was a bit outdated. Many outstanding proposals were in place, for a while now, from lawyers’ associations,” she adds, with the amendments being “timely, since there is a high number of jurists per capita in the country, and there were a number of challenges they were facing.”

“To begin with, the government increased the legally recognized costs of lawyers,” Stoycheva points out, adding that the taxes will be lower, compared to previous years. “This is a good update, considering that, during the COVID-19 pandemic, our profession suffered with courts being closed and businesses holding off on their disputes, while law firms still had their expenses going. For more than two years the lawyers looked forward to this change,” she notes. 

Another big update is that, since 2021, lawyers can establish sole law firms, with the ban on being executive directors and/or managers in companies also lifted, Stoycheva says. “This will enable lawyers to be more competitive and not be limited by the law if they want to grow other services or be leaders in the businesses of tomorrow.”

Something else, talked about not only by lawyers, is that the VAT registration threshold could be raised to BGN 100,000, from 2023. “This will be a big relief for many small businesses and professions, including lawyers, who have the burden to have their own accountant in a very early stage of their growth, as the current threshold is BGN 50,000. The amendment was accepted at first reading, however, a mandatory derogation from the EU is required to bring it into action,” she explains.

As for the politics, Stoycheva notes “the current climate in Bulgaria is a bit complicated. We are yet again moving toward the election of a new government, probably in October, which would be the fourth time in the last year and a half.”

According to Stoycheva, in Bulgaria, like elsewhere, energy is a hot topic. “Some of the most important challenges are related to the shifting focus on renewable energy. There are significant efforts to reduce the dependence on fossil fuels.” She adds, that “the EU Commission proposal suggests that increasing renewable energy by 45% is the target for 2030. Bulgaria will also strive to achieve a 27% share from renewables in gross final consumption by 2030.”

Finally, Stoycheva highlights a recent decision of the CJEU that introduced changes in Bulgarian legislation: “the dispute was related to the registration of geographic indications for agriculture products,” she notes. “Following the CJEU ruling, the Bulgarian supreme court confirmed that the registration for agricultural products is admissible only at the EU level – and not at a national one. The decision was followed by introducing changes to legislation, having an impact on all the companies in the Bulgarian market. This was one of those rare cases when Bulgaria applied to the CJEU to settle a dispute and is an important precedent for that reason as well,” she concludes.

Tokushev and Partners has advised on Bee Smart Technologies’ initial public offering of shares on the Beam growth market of the Bulgarian Stock Exchange. The First Financial Brokerage House acted as lead broker on the deal.

“Bee Smart Technologies raised the planned amount of BGN 1.2 million in its initial public offering on the Beam growth market of the Bulgarian Stock Exchange,” the firm announced.

According to Tokushev and Partners, “from July 20, 2022, on until registration of the capital increase in the Trade Register, on the Beam SME Growth Market shall be traded a temporary rights issue on the subscribed shares, with ticker BEE1.”

Bee Smart Technologies is a Bulgarian beehive-monitoring cloud-based technology developer.

On July 11, 2022, Kinstellar announced that KBC Bank’s acquisition of Raiffeisenbank in Bulgaria (reported by CEE Legal Matters on November 25, 2021) had closed.

As previously reported, Kinstellar and E+H advised Belgian KBC Group subsidiary KBC Bank on its EUR 1 billion acquisition of Raiffeisen Bank International’s Bulgarian subsidiary Raiffeisenbank, with Wolf Theiss advising the seller.

According to Kinstellar, “the transaction also includes Raiffeisenbank Bulgaria’s fully owned subsidiaries Raiffeisen Leasing Bulgaria, Raiffeisen Asset Management (Bulgaria), Raiffeisen Insurance Broker, and Raiffeisen Service.”

Earlier this year, this transaction won the 2021 CEELM Deal of the Year Award for Bulgaria (as announced on April 7, 2022). In-depth coverage of the deal is available in the CEE Legal Matters DOTY special issue.

Kinstellar’s updated team was led by Partners Diana Dimova and Nina Tsifudina and Counsel Svilen Issaev and included Of Counsel Dessislava Fessenko, Managing Associate Georgi Kanev, Senior Associate Denitsa Kuzeva, and Associates Nikolay Gergov and Gabriela Ivanova.

The E+H team was led by Partners Alric Ofenheimer and Josef Schmidt and included Partner Laurenz Liedermann and Associate Johannes Helm.

The Wolf Theiss team included Vienna-based Partners Andrea Gritsch and Claus Schneider and Counsel Zeno Grabmayr, as well as Sofia-based Partners Richard Clegg and Katerina Kraeva.

Komarevski Dimitrov & Partners has advised the Bulgarian subsidiary of the Kone Corporation on its acquisition of Liftkom Service.

According to KDP, the acquisition was completed at the beginning of June 2022 and enlarged the coverage of Kone’s maintenance business in Bulgaria.

Kone operates in the elevator and escalator industry. Liftkom Service is a Bulgarian company operating in the maintenance of elevators and escalators.

KDP’s team was led by Partner Venelin Dimitrov and Senior Associate Iva Georgieva.

Djingov Gouginski Kyutchukov & Velichkov has advised Maple Bear on its EUR 100 million investment program for the CEE region through a partnership with Vantage Capital. MFW Fialek advised Vantage Capital on the partnership. Boyanov & Co reportedly advised Vantage as well.

Maple Bear offers Canadian bilingual teaching methodologies and strategies, utilizing Canadian and local curriculums in full conformity with local education regulations. There are currently more than 570 Maple Bear Early Childhood, Elementary, and High School franchises in more than 30 countries.

According to DGKV, Maple Bear is “partnering with Vantage Capital to expand the Maple Bear Franchise Network. This partnership with Vantage Capital Fund Managers gives it the financial firepower to achieve ambitious growth targets to build a school network of over 200 schools in the region.”

According to the firm, “the Vantage investment program in Maple Bear Central & Eastern Europe has four components: the capitalization of Maple Bear Polska, which plans to open more than 40 schools, the capitalization of Maple Bear Czech Republic, which will target more than 20 schools, an equity investment into the regional head office to strengthen the quality of the education support offered to Maple Bear School owners, teachers, and children, and a real estate funding program to enable Maple Bear school owners to build large, flagship K12 schools in prime locations.”

DGKV’s team included Partner Omourtag Petkov and Senior Associate Ivan Punev.

Editor’s Note: After this article was published, MFW Fialek also announced it had advised Vantage Capital on the approximately EUR 100 million partnership with Maple Bear. The firm’s team included Counsel Rafal Siemieniec, Associates Grzegorz Policht, Pawel Siwiec, Wojciech Lichterowicz, and Mateusz Wieckowski, and Junior Associate Adrianna Kloda-Szczesna.

As a result of standard monitoring of public procurement procedures contracts, in July 2021, the Bulgarian government announced that in the past two-and-a-half years, roughly BGN 8.6 billion (EUR 4.4 billion) were spent on in-house awards of public procurement contracts in Bulgaria.

In addition to this announcement, the Public Procurement Agency (PPA) issued an official guideline for the application of the in-house exceptions under Article 14(1)(5) – (7) of the Public Procurement Act. Since the in-house exceptions of the Bulgarian Public Procurement Act have been adopted in compliance with Directive 2014/24/EU of the European Parliament and of the Council of February 26, 2014, on public procurement and repealing Directive 2004/18/EC, the PPA relied heavily on European legislation and European Court of Justice (ECJ) case law.

First, the PPA provided valuable insight into the application of Art. 14(1)(5)(a) of the Public Procurement Act. According to this provision, public contracting authorities are allowed to carry out tasks to perform their functions by directly entrusting activities to a legal entity that they control. The PPA pointed out that the contracting authority must be able to exercise both structural and functional control over the legal entity. In this respect, the fact that the contracting authority is the sole owner of the economic entity’s capital indicates the existence of such control. However, this is not sufficient to exclude the application of the Public Procurement Act. To find that control falls within the scope of the PPA, the contracting authority must prove that it participates in the company’s management – for example, in decisions relating to the election of the management bodies, determining the business plan, reducing and increasing the capital, etc.

Secondly, the PPA also brought special attention to the exception under Art. 14(1)(7) of the Public Procurement Act, which refers to in-house awards in case of joint control by two or more contracting entities over a legal entity contractor. The guidelines underpin that the contractor must have the capacity to carry out the relevant activities itself (to provide the service, carry out the works, etc.). If the contractor transfers the performance of the activities covered by the contract to another person, this is considered hidden subcontracting of the public contract. The PPA explained that such subcontracting is not permissible as it is contrary to the basic idea pursued by the case law of the ECJ that the contract should be executed with the contractor’s own resources. At the same time, this might have the effect of circumventing the application of the Public Procurement Act, as well as restricting competition.

In its guidelines, the PPA highlighted that to ensure publicity of the contracts to which legislative exceptions apply, the Public Procurement Act introduces an obligation for contracting authorities to publish a contract award notice (Article 26, paragraph 1, item 3). For certain contracts, e.g., those of significant value, of strategic importance, or in which there is a serious public interest, the PPA advised that contracting authorities should announce their intention to conclude such a contract in advance by publishing a voluntary transparency notice in the Public Procurement Register, even though they are not legally required to do so. This approach is supposed to provide additional certainty as to the legality and stability of the contract after the expiry of the period for appealing the notice.

The PPA’s guidelines are a step in the right direction for the Bulgarian government in implementing the relevant European legislation effectively in force. There is no doubt that in-house awards are beneficial to society as the rules on public procurement should not affect the freedom of public authorities to implement the tasks entrusted to them to provide public services by using their own resources.

However, in these cases, higher scrutiny would also be in the best interest of society as the implementation of preventive mechanisms against potential abuse of the exceptions to public procurement legislation is a highly recommended good practice within the EU. By setting rules for interpreting the legislative exception, the Bulgarian government provides clarity and legal security to persons who might wish to benefit from it legitimately.

By Antoniya Markova, Partner, and Tihomir Rachev, Associate, Gugushev & Partners

This Article was originally published in Issue 9.4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Amid political turmoil, Bulgaria is trying to catch up with a backlog of parliamentary work, according to Penkov, Markov & Partners Chairman and Senior Partner Vladimir Penkov.

“First of all, last year we had three parliamentary elections and, ultimately, they were able to form a new government only in December 2021,” Penkov begins. “It led to great pressure on society, with important legal questions accumulating and many issues left unaddressed. The government normally explains the delays in the legislative process by a need to investigate and analyze best practices before adopting laws, but the process is rather slow and the majority of legislative amendments are still in their initial stages.” 

Penkov adds that “political tensions increased with the arrest of the former prime minister, with many arguing that it was not in conformity with the law. In addition, in late March, a dispute arose among Bulgaria’s governing coalition members, leading the former coalition member of the governing party to withdraw its ministers from the government. Consequently, there is also a risk that members of parliament will also not support the coalition and, in that case, no political party would have a majority in parliament.” This, according to him, creates a risky situation, “considering the energy prices growing, refugees arriving, and general instability in the region.” This is “not a great period to have another extraordinary election,” Penkov adds. 

Penkov says that, despite the backlog in parliamentary work, “the adoption of around 20 new laws is expected in the coming months, on topics such as corruption, judicial reform, and public procurement. Without addressing these gaps, the EU might not grant Bulgaria the EUR 12 billion funding as a part of the national recovery and resilience plan, focusing mostly on the green energy transition.” On the bright side, he notes, “a law was adopted on renewable energy that facilitates households being granted permits for energy production rather easily.” In addition, Penkov highlights the tax-related amendments. “The VAT threshold for due legislation has been increased, however, the new law also introduces the abolition of VAT for products imported from the EU.”

“Bulgaria will soon adopt new whistleblowing and anti-corruption legislation by transposing the EU directives into national law,” Penkov notes. “Additionally, the abolition of the so-called ‘in-house’ orders in terms of public infrastructure to private entities without tenders aims to ensure equal treatment for all competitors on the market.” 

“Clearly, the list of expected regulations is quite comprehensive,” Penkov points out. “They aim to better protect the interests of businesses and individuals, tackle corruption, and ensure efficiency and transparency. These laws will likely be in force this summer if the parliament is still functioning by then,” he says.

Penkov highlights that some significant deals were concluded in the last few months in Bulgaria. “One of the most important among those,” he says, “was seeing a Bulgarian startup becoming a unicorn. Recently, Payhawk become the first-ever Bulgarian unicorn after raising USD 100 million in a Lightspeed-led Series B extension. We were quite excited to see them succeed when we analyzed the deal a month ago.”

As the usage of remote work tools increases, so does the demand for distance communication between employer and employee. Many would say that this is already a fact and on-going employee issues are easily addressed by sending an e-mail or making an entry in the company’s human resources management system. Yet the question remains if this is permissible under Bulgarian labor law and if it would be accepted by the Bulgarian state authorities in case of a dispute.

Although a legislative gap is the “usual suspect” when discussing digitalization of the employment relationships, the Bulgarian Labour Code was amended back in 2015 to allow employers create and keep employment related documents in an electronic form. Further, in 2018 the requirements for maintaining a record of the employer – employee relationships in an electronic form were laid down in the Ordinance on the Electronic Creation and Storage of Employment Related Documents in the Employee Files (referred below as the “Digital File Ordinance”). Said changes in fact gave legal ground to employers in Bulgaria to create, sign, exchange and store documents related to the employment relationship electronically, as well as to use human resources management systems for the creation and storage of electronic documents and statements.

On the implementation stage, however, the introduction of the digital employment file has not been as intensive as expected. Partly this is due to the legal and technical requirements introduced by the Digital File Ordinance. For the employer/ employee’s electronic statements and documents to have legal effect, employers must introduce specific rules in their internal acts and must dispose of tools for electronic identification, exchange, and storage of relevant employment documents, which are defined by the law. The technical requirements are based on the solutions for electronic identification and trust services recognized by the European union law and in particular Regulation No 910/2014 of the European Parliament and of the Council of 23 July 2014 on electronic identification and trust services for electronic transactions in the internal market (eIDAS Regulation). The Digital File Ordinance imposes the use of a qualified electronic signature for identification of the employer, as well as the implementation of a qualified electronic registered delivery service, qualified electronic seal, and qualified electronic time stamp, respectively for the exchange, creation and storage of electronic statements and documents which have a legal effect on the employment relationship.

In Bulgaria, as worldwide, the real test of the legal framework related to the electronic communications between employee and employer started with the Covid 19 pandemic, when the business was forced to think of the legal compliance of any statements and documents which exist in an electronic form only. As a result, the competent administrative authorities in Bulgaria have been addressed with numerous requests to provide information and clarification on the existing legal framework and in that process, they have confirmed that compliance with the requirements and the standards provided for in the Digital File Ordinance is a precondition for the lawfulness of the electronic documents and statements generated by either employee or employer.

Noting that the implementation process raises questions from both legal and business perspective, it is also true that the purpose of the technical measures required by the law is not only to guarantee a secure exchange of documents between employer and employee but also a trustworthy mechanism for generation of an evidence of their lawful creation and communication. And this is not a rare necessity, especially in labor litigation and labor inspections, which would most certainly increase now that distance work policies have become a standard rather than an exception.

By Victoria Marincheva, Senior Associate, Tsvetkova Bebov & Partners, Bulgaria, member of Eversheds Sutherland